Amazon plans to offer loans to Indian sellers

The Indian unit of the world’s largest e-tailer Amazon plans to offer loans to key vendors selling on its portal in an effort to keep them.Richa Maheshwari | ET Bureau | Updated: February 10, 2016, 12:54 IST

The Indian unit of the world’s largest e-tailer Amazon plans to offer loans to key vendors selling on its portal in an effort to keep them from shifting loyalties to rivals Flipkart and Snapdeal that have similar lending schemes.

Amazon India is sending invitations to qualified merchants to join its lending programme where a seller can apply for short-term working capital loans to buy more inventory and increase sales on Amazon.in.

“Access to working capital is the biggest hurdle for sellers. With this we are minimising the fiction and barriers for the sellers to get loans and helping them focus on growing their business on our platform,” said Gopal Pillai, general manager-seller services at Amazon India.

Amazon launched its pilot programme in September last year and disbursed loans of crores of rupees to hundreds of small and medium enterprises or SMEs through its third-party seller financing platform, Capital First, which is a Mumbai-based NBFC. The company declined to provide specific numbers.

The loans range between Rs 5 lakh and Rs 2 crore at 13-15% rate of interest for a period of four to six months. As merchant loyalty and engagement have become key factors in India’s cutthroat e-commerce industry, credit is becoming important in grabbing market share. Paytm, Snapdeal and Flipkart have launched similar loan schemes for their merchants to hold on to key sellers.

Amazon India, which has about 65,000 active sellers, said its loan scheme will give vendors easier access to loans with basic documentation in five days. “This is a way in which the e-commerce firms are addressing a pain point of low inventory. Now that sellers will keep good stock, their sales will increase and bring them growth,” said Harminder Sahini, founder and managing director of Wazir Advisors.

“Since these are giant companies, the chances of financial risks are low as SMEs would not want to lose a big business partner,” he said. In October, Snapdeal said it planned to disburse loans worth about Rs 1,000 crore by March 2016 to small and medium enterprises. In December, Paytm said that it will offer collateral-free loans to 500 million Indians including consumers by 2020.

Flipkart has also tied up with nearly 10 financial institutions to help sellers get loans. “The loan application process takes time. To solve this, we have designed a credit rating mechanism to gauge the loan-worthiness of sellers, which our partners can use to sanction collateral free loans at low interest rates,” said Pillai.

India is the third country where the scheme is being launched after home market United States and Japan. The programme is on invite only basis. “We do not follow the referral model. Ours is an integrated end-to-end process with our seller central dashboard where we are involved in the whole process. This is how we differentiate ourselves from others,” said Pillai.

According to a report by consultancy KPMG, about 41% of small and medium enterprises in India do not have access to bank loans or other products offered by financial institutions, with a financing gap of more than Rs 2.93 lakh crore.